Tesco sales fall further as strategy questioned

Tesco will warn this week that sales in the UK have slipped into decline
again, provoking new question marks about chief executive Philip Clarke's
£1bn turnaround plan and the strength of the UK economy.

Although Tesco has enjoyed an improvement in food sales, the supermarket group is thought to be suffering from a decline in non-food sales, particularly consumer electronics.Photo: Bloomberg News

The City is forecasting that Tesco will report a fall in UK like-for-like sales of up to 1pc for the third quarter of the year. This will compare with a 0.1pc rise in the second quarter, which ended six consecutive quarters of declining sales in the UK.

Mr Clarke is spending £1bn on trying to revitalise Tesco in the UK. Tesco is hiring extra staff, modernising stores, redeveloping its own-brand food and building new e-commerce infrastructure such as click-and-collect points.

The company has just relaunched its Tesco Metro shop on Regent Street – one of the retailer's busiest convenience stores – with a new salad bar and televisions in an attempt to take on sandwich outlets in the area such as Pret A Manger.

However, although Tesco has enjoyed an improvement in food sales, the supermarket group is thought to be suffering from a decline in non-food sales, particularly consumer electronics.

James Collins, analyst at Deutsche Bank, said: "Given that we're expecting absolute like-for-like growth to have slipped back a bit versus the second quarter and given some evidence of modest slippage relative to competitors, it's fair to ask whether the second-quarter improvement versus the first quarter was anything more than a flash-in-the-pan coincidence of timing or unsustainably promotionally driven and hence whether there is really any evidence that Tesco's UK investments have actually made any different to sales growth or its relative performance. We think there is."

In the third-quarter results on Wednesday, Deutsche Bank is forecasting that Tesco will say like-for-like sales in Asia fell 1.9pc as it battles legislation in South Korea that is forcing supermarkets to close at the weekend.

In the US, Tesco's Fresh & Easy business is set to report a 4pc growth in like-for-like sales, but this will be a slowdown on the 6.9pc in the second quarter and spark new doubts about the future of the division.